South State (SSB) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents SouthState Corporation's unaudited consolidated financial statements for Q3 and YTD 2023, including balance sheets, income statements, and cash flow details Consolidated Balance Sheets Total assets increased to $45.0 billion by September 30, 2023, driven by loan growth and deposit increases, with shareholders' equity reaching $5.23 billion Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $44,989,128 | $43,918,696 | | Total cash and cash equivalents | $1,329,137 | $1,312,563 | | Total investment securities | $7,344,483 | $8,189,780 | | Loans, net | $31,568,716 | $29,821,418 | | Goodwill | $1,923,106 | $1,923,106 | | Total Liabilities | $39,758,141 | $38,843,769 | | Total deposits | $36,935,198 | $36,350,623 | | Total Shareholders' Equity | $5,230,987 | $5,074,927 | Consolidated Statements of Income Q3 2023 net income decreased to $124.1 million due to higher interest expense, while YTD net income increased to $387.5 million driven by net interest income growth Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $355,371 | $362,334 | $1,098,377 | $939,667 | | Provision for Credit Losses | $32,709 | $23,876 | $104,189 | $34,713 | | Total Noninterest Income | $72,848 | $73,053 | $221,417 | $245,855 | | Total Noninterest Expense | $238,206 | $240,433 | $721,337 | $700,202 | | Net Income | $124,144 | $133,043 | $387,517 | $352,547 | | Diluted EPS | $1.62 | $1.75 | $5.07 | $4.71 | Consolidated Statements of Comprehensive (Loss) Income Q3 2023 saw a comprehensive loss of $29.3 million due to unrealized securities losses, while YTD comprehensive income improved to $248.7 million from a prior year loss Comprehensive (Loss) Income Summary (in thousands) | Component | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $124,144 | $133,043 | $387,517 | $352,547 | | Other Comprehensive Loss, net of tax | ($153,491) | ($225,574) | ($138,801) | ($695,312) | | Comprehensive (Loss) Income | ($29,347) | ($92,531) | $248,716 | ($342,765) | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $5.23 billion by September 30, 2023, driven by net income, partially offset by dividends and other comprehensive loss - Total shareholders' equity increased to $5,230,987 thousand at September 30, 2023, from $5,074,927 thousand at December 31, 2022[16] - The increase was driven by net income of $387.5 million for the nine months ended September 30, 2023[16] - This growth was partially offset by cash dividends declared of $115.4 million and an increase in accumulated other comprehensive loss of $138.8 million[16] Consolidated Statements of Cash Flows Net cash provided by operating activities was $821.1 million YTD 2023, with investing activities using $1.23 billion due to loan growth, resulting in a $16.6 million net cash increase Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $821,076 | $1,576,520 | | Net cash used in investing activities | ($1,226,035) | ($3,690,885) | | Net cash provided by (used in) financing activities | $421,533 | ($1,682,997) | | Net increase (decrease) in cash and cash equivalents | $16,574 | ($3,797,362) | Notes to Consolidated Financial Statements This section provides detailed disclosures for the consolidated financial statements, covering accounting policies, loan and investment details, credit losses, fair value, and capital adequacy Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and results for Q3 and YTD 2023, focusing on interest rate impacts, loan growth, deposit shifts, asset quality, and capital levels - Net income for Q3 2023 was $124.1 million ($1.62 diluted EPS), down from $133.0 million ($1.75 diluted EPS) in Q3 2022, primarily due to a $131.1 million increase in interest expense that outpaced the $124.2 million increase in interest income[204][207] - Total assets increased by $1.1 billion (2.4%) to $45.0 billion from year-end 2022, driven by a $1.8 billion (6.1%) increase in loans[233] - The company maintains a strong liquidity position with $14.4 billion in available funding sources, including FHLB availability, the Federal Reserve discount window, and brokered deposit capacity[201][294] - All regulatory capital ratios remain well in excess of 'well capitalized' minimums, with a CET1 ratio of 11.47% and a Total risk-based capital ratio of 13.76% at the consolidated level as of September 30, 2023[163][287] Results of Operations Q3 2023 net income declined due to rising interest expenses and higher credit loss provisions, while YTD net income grew, supported by increased net interest income Selected Financial Ratios (Annualized) | Ratio | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Return on average assets | 1.10% | 1.17% | 1.16% | 1.06% | | Return on average equity | 9.24% | 10.31% | 9.83% | 9.32% | | Return on average tangible equity (non-GAAP) | 15.52% | 17.99% | 16.67% | 16.19% | - Net interest margin (NIM) on a non-tax equivalent basis decreased to 3.49% in Q3 2023 from 3.55% in Q3 2022, as the 195 basis point increase in the cost of interest-bearing liabilities outpaced the 123 basis point increase in the yield on interest-earning assets[210][213] - Noninterest income in Q3 2023 decreased slightly by $0.2 million, with declines in correspondent banking and SBA income offset by higher service charges and other income[207][224] - Noninterest expense in Q3 2023 decreased by $2.2 million, mainly due to a $13.5 million reduction in merger, branch consolidation, and severance expenses compared to the prior year[207][228] Analysis of Financial Condition The company's financial condition remains strong with $45.0 billion in assets, driven by $1.8 billion in loan growth and increased deposits, while asset quality remains stable despite higher nonperforming assets - The investment securities portfolio decreased by $845.3 million (10.3%) to $7.3 billion, while the unrealized net loss on the AFS and HTM portfolios increased to $1.6 billion due to higher interest rates[234][237] - Total loans grew by $1.8 billion (8.1% annualized) to $32.0 billion, led by strong organic growth in the non-acquired portfolio, particularly in consumer owner-occupied and commercial real estate loans[249] - The Allowance for Credit Losses (ACL) increased to $448.0 million, representing 1.40% of total loans, up from 1.18% at year-end 2022. The increase reflects a provision of $109.1 million YTD, driven by loan growth and economic uncertainty[257] - Nonperforming assets (NPAs) increased to $166.8 million, or 0.52% of total loans and repossessed assets, up from $109.7 million (0.36%) at year-end 2022, primarily due to an increase in non-acquired commercial nonaccrual loans[268] Capital Resources and Liquidity The company maintains robust capital and liquidity, with shareholders' equity growing to $5.2 billion and all capital ratios exceeding regulatory minimums, supported by $14.4 billion in contingent funding Consolidated Capital Ratios | Ratio | September 30, 2023 | December 31, 2022 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | CET1 Risk-Based Capital | 11.47% | 10.96% | N/A | | Tier 1 Risk-Based Capital | 11.47% | 10.96% | 6.00% | | Total Risk-Based Capital | 13.76% | 12.97% | 10.00% | | Tier 1 Leverage | 9.34% | 8.72% | N/A | - The company has significant available liquidity, including $7.8 billion from the FHLB, $1.9 billion from the Federal Reserve's discount window, and $4.4 billion in brokered deposit capacity[294] - The company's Board of Directors approved a stock repurchase program in April 2022 for up to 4,120,021 shares; no shares were repurchased under this program in 2023[278][340] Asset-Liability Management and Market Risk Sensitivity The company actively manages interest rate risk, positioned as slightly asset-sensitive, with a +100 bps rate shock projected to increase net interest income by 1.3%, and has completed its LIBOR transition Net Interest Income Sensitivity (1-Year Horizon) | Rate Shock | % Change in NII | | :--- | :--- | | +200 bps | 2.2% | | +100 bps | 1.3% | | -100 bps | (1.9%) | | -200 bps | (4.5%) | - The Economic Value of Equity (EVE) is estimated to decrease by 2.4% in a +100 bps rate shock and increase by 0.1% in a -100 bps shock[311] - As of September 30, 2023, all LIBOR-indexed loans, derivatives, and securities have been successfully migrated to SOFR and other alternative reference rates[318] Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the company's quantitative and qualitative disclosures about market risk since the 2022 Annual Report on Form 10-K - There have been no material changes in market risk disclosures from the 2022 Form 10-K[332] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2023[333] - No material changes were made to internal control over financial reporting during the third quarter of 2023[335] PART II — OTHER INFORMATION Legal Proceedings The company is not a party to any pending material legal proceedings outside the ordinary course of business - As of September 30, 2023, the company is not party to any material legal proceedings outside the ordinary course of business[337] Risk Factors No material changes have occurred in the company's risk factors since those disclosed in the 2022 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the 2022 Form 10-K[339] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the publicly announced stock repurchase program in Q3 2023, though minor repurchases occurred for tax purposes related to equity awards - The 2022 Stock Repurchase Program authorizes the repurchase of up to 4,120,021 shares. No shares were repurchased under this program during 2023[340] Share Repurchase Activity (Q3 2023) | Period | Shares Purchased* | Average Price Paid | | :--- | :--- | :--- | | July 2023 | 3,444 | $76.64 | | August 2023 | 834 | $78.73 | | September 2023 | 819 | $69.93 | | Total | 5,097 | | - *Shares were repurchased from employees to cover taxes on vesting equity awards and were not part of the publicly announced repurchase plan[341] Other Information No other material information is reported for this item - None[346] Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and iXBRL data files - Exhibits filed include Rule 13a-14(a) and Section 1350 certifications, as well as iXBRL formatted financial statements[348]